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Western Canadian Coal Announces Third Quarter 2008 Operating Results

TSX: WTN &amp; WTN.DB and AIM: WTN
VANCOUVER, Feb. 14 /CNW/ - Western Canadian Coal Corp. (TSX WTN &amp; WTN.DB;
AIM: WTN) (or the "Company") is pleased to announce a strong improvement in
the current quarter as a result of a 5% reduction in cash costs, 11% increase
in production and improved coal prices realized. Operating losses have
diminished by 40% during the current quarter as compared to the second quarter
2008.
"The productivity improvement plan established last quarter has resulted
in improved operations and lower costs. While much work still needs to be
done, I am pleased to see that we are heading in the right direction," said
John W. Hogg, President and CEO. "Being a northeast BC coal producer with
underutilized rail and port capacity, our mines are well positioned to take
advantage of the anticipated record coal prices next year, which maybe as much
as 100% higher than current coal year contracts."
Mr. Hogg adds, "Spot prices for coking coal have risen markedly in
international markets since current contract prices were negotiated,
reflecting transport constraints and, more recently, severe floods at the main
Australian coal fields. Recent spot coking coal sales in the market have taken
place at $275 per tonne and more."
Third Quarter 2008 Update and Financial Summary:
- The Company expects to have materially delivered on all of its fiscal
2008 sales commitments by the end of the quarter ending March 31,
2007. As a result, the Company will be in a position to benefit from
the higher 2008 coal year prices in the first quarter of fiscal 2009.
- The Company has signed three long-term sale volume contracts of 3 to
5 years in length for 550,000 tonnes per year of hard coking coal and
700,000 tonnes per year of PCI coal and has several memorandum of
understandings in place.
- With the higher coal prices forecasted for the long term, the Company
is undertaking a study to review the amount of coal resources and
reserves it can economically produce over the life of the mine.
- Completion of the Falls Mountain transaction (see December 3, 2007
press release) is on track and subject to receipt of required
approvals, we expect it to close sometime early in the first quarter
of fiscal 2009.
- Sales were $55.1 million from 693,000 tonnes of coal at an average
price realized of $79.55 or US$80.82 per tonne.
- Cash costs were $80.74 per tonne or 5% lower than the second
quarter's cash costs of $85.36 per tonne with steady quarter over
quarter productivity improvements across most metrics.
- Operating loss of $7.9 million or 41% lower than the second quarter's
operating loss of $13.5 million.
- The Perry Creek Mine at the Wolverine Property produced 683,000
tonnes of run-of-mine (ROM) coal, and processed approximately 682,000
tonnes of ROM coal through the Wolverine plant, producing 480,000
tonnes of coal or 11% more than the second quarter 2008, for a
processing yield of 70.4%. Sales from Perry Creek were 440,000 tonnes
with 492,000 railed to port.
- The Brule Mine at the Burnt River Property produced 296,000 tonnes of
ROM coal. Sales were 253,000 tonnes while 333,000 tonnes were railed
to port.
- Net loss for the quarter is $21.3 million or a loss per share of
$0.18, as compared to a net loss of $43.9 million or a loss per share
of $0.38 in the second quarter 2008. The prior quarter results
included $22.6 million of $0.20 per share of one-time adjustments.
- The Company repaid $7.5 million of the Wolverine project debt
facility and now has $28.0 million of total debt outstanding.
- Issued convertible debentures through a private placement for a face
value of US$40.4 million.
News Release
This news release is prepared as at February 14, 2008 and should be read
in conjunction with the Company's audited financial statements for the year
ended March 31, 2007 and notes contained therein, and Management's Discussion
and Analysis (MD&amp;A) for the same period. This news release does not constitute
MD&amp;A as contemplated by relevant securities rules. Western Canadian Coal
Corp.'s Third Quarter Report and MD&amp;A for the three and nine months ending
December 31, 2007 are filed on SEDAR and are available at www.sedar.com and
the Company's website www.westerncoal.com.
Financial Summary - unaudited:
(In thousands of Canadian dollars, December March
except tonnes and per share data) 31, 2007 31, 2007
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Cash &amp; cash equivalents $ 12,515 $ 35,272
Inventory 35,284 28,522
Other current 27,297 29,803
Total Assets 436,539 438,575
Current liabilities $ 75,010 $ 75,063
Long-term liabilities 209,509 190,130
Shareholders' equity 152,020 173,382
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Three months ending Nine months ending
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December 31, December 31,
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2007 2006 2007 2006
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Tonnes sold 693,000 474,000 2,178,000 935,000
Revenue $ 55,132 $ 48,676 $ 177,198 $ 89,361
Cost of goods sold 63,064 46,795 202,633 79,362
Operating (loss) profit (7,932) 1,881 (25,435) 9,999
Other expenses 13,331 11,953 29,371 22,034
Income tax expense (recovery) - (2,826) 13,380 (2,339)
Net income (loss) $ (21,263) $ (7,246) $ (68,186) $ (9,696)
Earnings (loss) per share,
basic $ (0.18) $ (0.08) $ (0.62) $ (0.11)
Earnings (loss) per share,
diluted $ (0.18) $ (0.08) $ (0.62) $ (0.11)
Average coal prices realized
(US$ per tonne) $ 80.82 $ 89.80 $ 78.05 $ 84.09
Average cash cost
(C$ per tonne) $ 80.74 $ 88.81 $ 82.77 $ 77.98
Production (tonnes) 776,000 372,000 2,315,000 780,000
Average CAD/USD rate 0.9843 1.1434 1.0424 1.1365
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Included in the above balances and results are the Company's
proportionate share of its interest in and results from the Belcourt Saxon
joint venture, as disclosed in note 4 to the financial statements for the
three and nine months ended December 31, 2007.
Revenues
For the quarter ended December 31, 2007, total sales revenues were
$55,132,000 from the sale of 693,000 tonnes of coal. The average price per
tonne realized during the period was $79.55 or US$80.82.
During the quarter ended December 31, 2006, total revenues were
$48,676,000 on 474,000 tonnes sold. The average selling price per tonne
realized was $102.68 or US$89.80. The December 31, 2006 quarter was the first
quarter sales were made from the Perry Creek mine.
The primary reason for the increase in the Company's total revenues over
the comparable quarter in the prior year is the increase in sales volume of
219,000 tonnes. Realized revenues per tonne were adversely affected by a
stronger Canadian dollar and lower sales prices compared to the quarter ended
December 31, 2006.
For the nine month period ended December 31, 2007, total sales revenues
were $177,198,000 from the sale of 2,178,000 tonnes of coal. The average price
per tonne realized during the period was $81.36 or US$78.05.
The primary reason for the increase in the Company's total revenues over
the comparable period in the prior year is the increase in sales volume from
the Perry Creek mine as sales have been made from this mine during the nine
months ending December 31, 2007 compared to only three months in the nine
month period ending December 31, 2006. Realized revenues per tonne were
adversely affected by a stronger Canadian dollar and lower sales prices
compared to the period ended December 31, 2006.
Cost of goods sold
Cost of goods sold for the three months ended December 31, 2007 totaled
$63,064,000 or $91.00 per tonne compared to $46,795,000 or $98.72 per tonne in
the third quarter of fiscal 2006. Cost of goods sold includes cost of
production, transportation, and depletion, amortization and accretion charges
as presented in the table below:
(In thousands of December December
Canadian dollars) 31, 2007 $/tonne 31, 2006 $/tonne
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Cost of production $ 38,762 $ 55.93 $ 30,049 $ 63.39
Transportation and other 17,194 24.81 12,046 25.41
Depletion, amortization
and accretion 7,108 10.26 4,700 9.92
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Total cost of goods sold $ 63,064 $ 91.00 $ 46,795 $ 98.72
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The decrease in the current quarter's per unit cost of product sold over
the comparable prior quarter is due to the production of the Perry Creek mine
improving over the prior quarter as the mine has been moving towards a steady
state of production. This improvement was offset by a reclassification of
costs between cost of product and cost of transportation of approximately
$3.90/tonne relating to the first half of the fiscal year relating to the
Brule mine. During the quarter ended December 31, 2007, the Company wrote down
its coal inventory balance to its net realizable value. This write-down of
$641,000 was required due to the strengthening of the Canadian dollar in
comparison to the US dollar and higher production costs.
Transportation and other costs are comparable to the period in the prior
year.
The increase in per unit cost of depletion, amortization and accretion,
is due to the additions made to property, plant and equipment resulting in a
higher depreciation base.
For the current quarter, cash costs, a key performance indicator for the
industry, were $80.74 per tonne compared to $88.80 per tonne for the quarter
ended December 31, 2006. The decrease was primarily due to the Perry Creek
mine moving towards a steady state of production, as described above.
Operating (loss) profit from mining operations
The operating loss from mining operations for the quarter ended
December 31, 2007 was $7,932,000 as compared to an operating profit of
$1,881,000 in the same quarter last year.
Other expenses
Other expenses, for the quarter ending December 31, 2007, were $12,029,000
and include the following:
(In thousands of Three months ending Nine months ending
Canadian dollars) December 31, December 31,
2007 2006 2007 2006
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General, administration
and selling $ 3,805 $ 3,661 $ 12,708 $ 10,149
Coal exploration 1,809 2,310 3,614 6,317
Interest, accretion and
financing fees 5,380 5,163 17,258 5,169
Abandoned transaction expense - 54 - 674
Investment impairment - - 1,500 -
- Terminated contract expense - - 2,590 -
Other expenses (income) 2,226 765 (8,410) (275)
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Total other expenses $ 13,220 $ 11,953 $ 29,260 $ 22,034
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General, administration and selling costs for the quarter ended
December 31, 2007 increased by $144,000 or 4% to $3,805,000 over the same
period in the prior fiscal year. The increase is primarily due an increase in
salaries, benefits and other remuneration, an increase in insurance premiums
resulting from the addition of equipment and the construction of the Perry
Creek mine infrastructure and an increase in amortization as a result of
additions to property, plant and equipment at the corporate level. These
increases are partially offset by lower sales and marketing costs as during
the quarter ended December 31, 2006, the Company was required to pay royalties
on its Perry Creek mine sales. Also, stock-based compensation is lower as
during the quarter ended December 31, 2006, 190,000 stock options were granted
to senior management whereas no options were granted during the corresponding
period in the current fiscal year.
Coal exploration expenditures for the quarter ended December 31, 2007,
including the Company's proportionate share of expenses recorded by the
Partnership of $191,000, decreased to $1,809,000 from $2,310,000 in the same
quarter in the prior fiscal year. Coal exploration costs include property
development expenditures, field programs, consultants, coal license and lease
payments, engineering, environmental costs and other project administration
expenses. Exploration costs are charged to earnings in the quarter in which
they are incurred, except where these costs related to specific properties for
which economically recoverable reserves have been established, in which case
they are capitalized.
Interest and accretion on the Company's convertible debentures, interest
on the Company's debt facilities and capital leases, all of which relate to
the Wolverine Project, commenced being charged to operations effective
October 1, 2006, when the Perry Creek Mine was determined to have reached
commercial production. For the quarter ended December 31, 2007, interest and
accretion on long-term debt were $5,491,000 (2006 - $5,163,000).
The Company is in compliance with the amended November 29, 2007 credit
agreement. The Company is also in the process of refinancing the debt facility
with the goal of establishing a long-term debt structure that provides the
Company with increased flexibility.
Other expenses amounted to $2,226,000 for the quarter ended December 31,
2007, as compared to other expenses $765,000 in the prior year. Other expense
for the period ended December 31, 2007 consisted of $2,746,000 of realized
forward exchange losses, $229,000 of interest income and $291,000 of
miscellaneous income. Other expense for the period ended December 31, 2006
consisted of interest income of $669,000 and $1,434,000 of foreign exchange
losses.
Net (loss) income
Net loss for the quarter ended December 31, 2007 was $21,263,000 compared
to a net loss of $10,072,000 for the same period in the previous fiscal year.
Net loss period reflects: an operating loss of $7,932,000; other expenses
totaling $13,220,000 including general, administrative and selling expenses;
coal exploration; and interest, accretion and financing fees on long-term
debt.
Market Outlook
The financial performance of the Company is strongly influenced by the
price of metallurgical coal, which is set in a highly competitive marketplace
and impacted by numerous factors outside the control of the Company. These
include the demand for steel, developments in mining technology,
infrastructure and transportation capacity constraints, fluctuations in
currency, interest rates, political stability and overall economic growth.
With continued strong economic growth, the global demand for hard coking
coal is hampered by supply constraints on producers; the continued shortage of
transportation infrastructure in the major coal producing countries, coupled
with scarcity of key mining inputs such as skilled labour and mining
equipment, have once again skewed the supply-demand balance in favour of the
producers. This situation has been exacerbated by the recent major flooding
that has occurred in Australia (a major coal producing country) and by China
curtailing coal exports. Until last year, China was a net coal exporter. This
trend was evident in 2007, with spot prices moving upwards as the year
progressed, enabling Australian and Canadian producers to achieve 2007 spot
prices in the range US$120 - $200/tonne. The latest market spot contract
signed by another coal producer as reported by an industry trade publication
was US$275 per tonne. These spot levels have influenced expectations for 2008
pricing, with some industry analysts predicting a price in excess of
US$160/tonne for the Prime Australian coking coals, which is as much as 70%
higher than current coal year contracts.
A similar situation exists in the supply-demand balance for ULV PCI
coals. Constraints on mine production in key supply areas in 2007 have
coincided with increased demand. Adding to this are recent thermal coal price
increases in excess of US$100 per tonne, which will impact PCI pricing in that
PCI coals, with lower ash and higher heat values, command a substantial price
premium above thermal coal prices. For the coal year 2008, industry analysts
are projecting that ULV-PCI coal prices may be in excess of US$125 per tonne.
In the longer term, the Company believes that the market fundamentals for
metallurgical coal will provide substantial opportunity to increase market
diversity and market share. The Company's Wolverine hard coking coal has
received positive reviews from some of the world's leading steel mills. The
Company's Burnt River ultra-low volatile PCI coal is consistently ranked in
the top three PCI coals worldwide and has experienced unparalleled demand.
These coals, in conjunction with highly efficient rail and port
infrastructure, which has excess capacity, provides to the Company a strategic
advantage to grow and diversify.
Long term pricing for coking coal and PCI will continue to be influenced
by the balance in supply and demand, and by the need for an adequate return on
capital required by new coal supply sources. Therefore, the Company believes
long-term prices for metallurgical coal will be higher on average than
historical prices and as such will be reviewing the resource/reserve estimates
at its mines.
Guidance
The Company's ultra-low volatile PCI coal has been sold to major steel
mills in Asia, Europe and South America and its Wolverine hard coking coal is
being placed in similarly diverse and growing markets. Long term supply
agreements ranging from three to five years in duration have been concluded
with three top tier steel mills for 700,000 tonnes per year of the planned
output of the Brule mine, and approximately 550,000 tonnes per year of planned
production from the Wolverine mine for fiscal 2009.
At the onset of the 2008 fiscal year, both production and rail service
have achieved targeted levels. With resources now fully deployed for coal year
2007 (the Company's fiscal 2008), the Company anticipates 2.1 million tonnes
of production from the Perry Creek Mine, of which approximately 1.9 million
tonnes will be marketed as Wolverine hard coking coal. The Company expects to
produce 1.3 million tonnes of PCI coal from the Brule mine during the 2008
fiscal year.
The Company expects to have materially delivered on all of its fiscal
2008 sales commitments by the end of the quarter ending March 31, 2008. As a
result, the Company will be in a position to benefit from the higher 2008 coal
year prices in the first quarter of fiscal 2009.
Conference Call
The Company will be hosting a conference call to discuss the third
quarter 2008 operating results at 8:00am (PST) on February 15, 2008. To
participate on the call, dial either 1-800-732-9307 or 416-644-3416. The call
will also be webcast live on the Company's website at www.westerncoal.com.
About Western Canadian Coal
Western Canadian Coal Corp. produces 3.4 million tonnes of high quality
metallurgical coal from two mines located in the northeast of British
Columbia. The company also has interests in various coal properties in
northern and southern British Columbia and a 50% interest in the Belcourt
Saxon Limited Partnership, which was formed to explore and develop the
Belcourt and Saxon group of properties in northern BC. Currently, these
properties provide the company with an estimated 25 years of coal reserves at
current production levels.
Forward-Looking Information
This release may contain forward-looking statements that may involve
risks and uncertainties. Such statements relate to the Company's expectations,
intentions, plans and beliefs. As a result, actual future events or results
could differ materially from those suggested by the forward-looking
statements. Readers are referred to the documents filed by the Company on
SEDAR. Such risk factors include, but are not limited to changes in commodity
prices; strengths of various economies; the effects of competition and pricing
pressures; the oversupply of, or lack of demand for, the Company's products;
currency and interest rate fluctuations; various events which could disrupt
the Company's construction schedule or operations; the Company's ability to
obtain additional funding on favourable terms, if at all; and the Company's
ability to anticipate and manage the foregoing factors and risks.
Additionally, statements related to the quantity or magnitude of coal deposits
are deemed to be forward-looking statements. The reliability of such
information is affected by, among other things, uncertainties involving
geology of coal deposits; uncertainties of estimates of their size or
composition; uncertainties of projections related to costs of production; the
possibilities in delays in mining activities; changes in plans with respect to
exploration, development projects or capital expenditures; and various other
risks including those related to health, safety and environmental matters.
WESTERN CANADIAN COAL CORP.
"John Hogg"
President and Chief Executive Officer